Airbnb and New York City’s Conflict Will Continue Until Judge’s Ruling

Christie Smythe, Bloomberg

- Apr 23, 2014 8:00 am

Skift Take

Both parties have attempted to settle since they first began speaking in August, but this will play out much more publicly now.

— Jason Clampet

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Airbnb Inc., an alternative to hotels in thousands of cities, challenged a New York state demand for information on whether the online, home rental service violates housing and occupancy tax laws.

An Albany state judge heard arguments yesterday on the company’s bid to quash New York Attorney General Eric Schneiderman’s request for data about people who rent out their homes, a move which Airbnb described as a “government-sponsored fishing expedition.”

The court clash pits the San Francisco-based technology business that supporters say should be welcomed as a boost for local tourism against housing advocates who argue the service is driving up rents and turning affordable accommodation into illegal hotels.

“Today, the attorney general made it clear that he remains determined to comb through the personal information of thousands of regular New Yorkers just trying to make ends meet,” David Hantman, head of global public policy for Airbnb, said in a statement.

Airbnb, which is said to be valued at $10 billion under a financing deal with TPG Capital, provides a marketplace for short-term rentals of homes throughout the world. It said it expects to generate $768 million in economic activity in New York City this year. InterContinental Hotels Group Plc, whose brands include the Holiday Inn, has a market value of $8.3 billion.

Under New York law prohibiting illegal hotels, residents may not rent out their entire homes for less than 30 days. More than 60 percent of New York City Airbnb listings on Jan. 31 appeared to violate that law, according to an affidavit filed with the court yesterday by Sumanta Ray, director of research and analysis for the attorney general’s investor protection bureau. [This was based on Skift’s previous research]

“Airbnb is simply looking out for its bottom line at the expense of a law that protects quality of life for building residents and safety for tourists,” Matt Mittenthal, a spokesman for Schneiderman, said in a statement yesterday. Airbnb has resorted to “name calling and public relations to confuse the issue,” he said.

‘Regular People’

Hantman said in a statement on the company’s website yesterday that the majority of its hosts are “regular people, renting out their own home to travelers” and that it wants to be able to collect and remit taxes under the law.

The dispute between the attorney general and the home- sharing service highlights tensions between existing regulations and growing “sharing economy,” said Arun Sundararajan, a professor at New York University’s Stern School of Business who studies how information technologies transform business and society.

“The new ways of doing things are sort of hitting up against this regulatory infrastructure,” he said.

City Hosts

The company’s approximately 15,000 New York hosts are probably a “drop in the ocean” compared with how many residents might consider using the service to help pay rent if not for regulatory or other concerns, he said.

“The fact that there is this potential is precisely the reason why the regulatory barriers are so high,” he said.

“Airbnb generates positive economic returns for cities around the world, adds millions of dollars to local economies, and brings more people to New York,” Internet Association President and CEO Michael Beckerman said. “Airbnb should be welcomed by business and government leaders hungry for a boost in local tourism, not pushed out by politicians seeking to protect incumbents and special interests.”

Housing advocates and tenant groups counter that services like Airbnb threaten to drive up rents and convert otherwise affordable housing into illegal hotels.

‘Epic Proportions’

“New York City’s affordable housing crisis has reached epic proportions and websites like Airbnb have only exacerbated the problem,” Jonathan Westin, executive director of New York Communities for Change, said in an e-mailed statement.

Founded in 2008, Airbnb is backed by venture-capital firms including Sequoia Capital, Greylock Partners and Founders Fund.

At $10 billion, Airbnb joins the ranks of the most highly valued private U.S. technology companies, which include Dropbox Inc. and Palantir Technologies Inc.

If TPG is moving ahead with financing for the company amid the legal case, “then they must have a very low level of concern that this is going to be meaningful” by having an impact on cash flow, Scott F. Meadow, a professor at the University of Chicago Booth School of Business, said in a phone interview.

“If the answer to that is it’s going to have even a 10 percent probability of influencing cash flow, I think most buyout firms of this quality would think twice before they go forward,” he said.

The case is Airbnb Inc. v. Schneiderman, 5593-2013, New York Supreme Court, County of Albany (Albany).

With assistance from Pui-Wing Tam in San Francisco and Serena Saitto in New York. To contact the reporter on this story: Christie Smythe in Brooklyn at csmythe1@bloomberg.net. To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net.